13 frequently forgotten facts about board appointments

Principle J of the UK Corporate Governance Code discusses board appointments. It says that “appointments to the board should be subject to a formal, rigorous and transparent procedure, and an effective succession plan should be maintained for board and senior management”. In this blog post, brought to the NEDonBoard community by Julie Garland McLellan, we explore 13 frequently forgotten facts about board appointments.

There is no automatic right for a shareholder of any size to have a nominee on the board.
No director is legally able to act in the interests of anyone other than the company itself (duty is to the company as a separate legal entity).

The board must develop effective annual selection, induction, evaluation, development and renewal processes to keep itself healthy and sufficiently diverse (from Professor Bob Garrett).

Related post: Board Best Practice, Succession Planning

Directors can appoint to a casual vacancy if the board is not already at its maximum number.
A director who is appointed to a casual vacancy can serve on the board (and be remunerated) until the next general meeting; at the next general meeting the shareholders will vote the director onto the board.
If the shareholders do not vote a nominated director onto the board the board is ill-advised to reappoint them to casual vacancies and try again next year; the shareholders’ vote at the general meeting should be considered the final say on the matter.
A shareholder may nominate a director to the board (or its nomination committee) and ask that the nomination be put to a general meeting for vote.
A board cannot oblige shareholders to vote for the board’s recommended candidates.
Bond holders and other creditors do not have a vote in director elections.
Directors are elected for a set term (often three years) and, at the end of their term must stand for re-election if they wish to remain on the board. Some boards have a maximum number of consecutive terms. The UK Corporate Governance Code says that “a non-executive director’s independence may be impaired when a director has served on the board for more than nine years from the date of their first appointment”.

Once elected, a director is very hard to remove. There is no right for a board to remove a director; the shareholders in a general meeting can vote on a removal resolution. Putting removal resolutions to meetings is rare and embarrassing for all concerned.
Nominee directors are not considered to be independent. The UK Corporate Governance Code holds that a majority of the board should be independent.
It is dangerous to assume that someone knows how to be a director just because they know how to be an expert at whatever their career has been thus far. NEDonBoard strongly encourage NEDs to invest in their professional development when they consider taking on a role and throughout their NED career. The Wates Corporate Governance Principles for Large Private Companies state that “companies should demonstrate a commitment to the ongoing professional development of their board, and directors should embrace such opportunities and ensure that they have sufficient time to discharge their duties”.

The article has been written by Julie Garland McLellan and edited by NEDonBoard. Based in Sydney, Julie is a boardroom trends forecaster, experienced company director and professional conference speaker. She has served on 17 Boards over the past 16 years, specialising in organisations in the resources, engineering, utilities, infrastructure and not-for-profit sectors which are facing interesting challenges.

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